Offshore accounts relatively easy to open

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Keeping it legal

Americans can own foreign corporations and maintain overseas bank accounts if they follow stringent government rules designed to prevent tax evasion and money laundering. Violations carry potential fines, and tax evasion is punishable by five years in prison per count. Internal Revenue Service officials recommend that anyone with questions consult a tax expert.

In general, the law requires:

Worldwide income: U.S. citizens must report any income, including foreign trusts and bank accounts. Most often, the income can be declared on Schedule B, Interest and Ordinary Dividends, and attached to an annual income tax return.

Foreign bank and financial accounts reporting: Any U.S. citizen with foreign accounts containing more than $10,000 must declare them to the IRS. Anyone who willfully fails to report overseas money faces a fine equal to the greater of $100,000 or 50 percent of the amount in the accounts.

Statement of foreign financial assets: A citizen with foreign holdings that exceed the government's reporting threshold must declare them. For example, an unmarried taxpayer living in the United States must declare assets worth more than $50,000.

Controlled foreign corporations: A citizen who serves as an officer or director of a foreign corporation may be required to declare that interest to the IRS. The penalties for failing to report the ownership to the IRS start at $10,000.

Foreign trusts: A citizen treated as the owner of a foreign trust must declare that to the IRS.

Source: Internal Revenue Service

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Trib reporters established a bank account and incorporated a shell company in Belize, a Central American nation that is among 70 identified as “secrecy havens” by the Tax Justice Network.

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The cash sits about 1,600 miles away in an obscure Central American country with palm-lined streets and sandy beaches that neither of us has visited.

For less than $1,000, almost anyone can establish a company and — more importantly — an offshore bank account in an international tax haven.

Armed with a debit card supplied with the bank account, two reporters who sometimes need help with balancing their checkbooks now can move money in and out of the United States to Belize, a country renowned for banking secrecy.

Though our company, ACLK Ltd., is nothing but a shell, we set it up to show that having an offshore bank account is not just for the rich and famous. Experts say we hardly could have picked a better spot.

“Belize is one of the countries that I would go to to hide my money and to live if I had to,” said Dennis Lormel, a former head of the FBI's Financial Crimes Section. “The fact is that I'm going to be protected down there, and the (U.S.) government is probably not going to be able to extradite me or get into my bank accounts.”

We spent weeks poring over Internet sites offering to set up offshore accounts, placing research calls around the world and seeking advice from tax experts.

We engaged in frequent calls and emails with the Internal Revenue Service to make sure we stayed within the law. People have many legitimate reasons for moving money to offshore accounts in Belize and other places, such as diversifying a financial portfolio.

The Tribune-Review's Shadow Economy series showed that more than half of the world's commerce passes through tax haven accounts. A secret bank account in a tax haven can make money practically invisible to a spouse, business partners, litigants or government investigators.

“Having an anonymous company is really handy for a whole range of illicit activities, and getting an anonymous company is pretty easy,” said Jason Sharman, a leading expert on offshore banking at Griffith University in Australia.

The devil, Sharman said, is in getting a bank account: “That's quite a lot harder than getting an anonymous company, although not impossible.”

Lots of options

The Internet is full of offers to help. It was almost like a carnival with barkers vying for business.

Offshore Company Inc. in Santa Clarita, Calif., offers to help open an offshore bank account or even form a bank (up to $1 million in startup costs; $10 million in capital).

The woman who answered the phone at a number listed at the company's address identified it as a pawn shop.

Kevin Wessell, the CEO of Offshore's parent firm 1-800-Company LLLP, said the pawn shop is unrelated. He defended offshore accounts.

“We want to make sure it's done in a legal, moral, honest fashion,” he said.

Wessell said foreign bank accounts do not cause people to break the law.

“Good things can be used for bad purposes, but it's really the person behind it,” he said.

Other brokers offer similar services in secrecy havens such as Mauritius, an island in the Indian Ocean, and the British Virgin Islands, among dozens of places in the Caribbean.

Sharman, who set up offshore for his research, warned that we might lose our money to an unscrupulous broker or someone could steal our identities. He said a bank claiming to be licensed in Somalia and operating in Liechtenstein once ripped him off.

“If you're going for really the bottom end of the market, then these people are obviously not scrupulous,” Sharman said. “To the extent you're seeking to avoid the law, that makes it difficult to go back to the law and press a claim against someone who scammed you.”

We turned to the London-based Tax Justice Network for advice. Formed by Parliament, it is a sworn enemy of tax havens, which it maintains deprive countries of needed revenue.

Director John Christensen recommended that we talk to experts such as Richard Murphy, a British accountant who heads Tax Research LLP. He, in turn, recommended a London-based company that was one of many such firms we contacted.

Incorporating the company would have cost from $1,100 in Belize to nearly $2,500 in the Bahamas. Getting a related bank account in the British Virgin Islands, adding to the paper trail in a separate jurisdiction, would have cost $1,400. Obtaining a debit card added $235; Internet banking, $200. The total could be more than $4,300.

We decided to see if we could do it for less on our own.

A little work required

Belize is a six-hour drive from Cancun, the popular Mexican resort town.

Known as British Honduras until it gained independence from the United Kingdom in 1981, Belize is among 50 financial privacy jurisdictions identified by the Government Accountability Office.

Belize has 27 tax information exchange agreements with other countries, but only nine meet standards of the Organisation for Economic Co-operation and Development, a monitoring group for financial transparency. Belize does not have an agreement to share banking information with the United States.

Still, it's not easy for foreigners to open a bank account in Belize.

We started by contacting Belize Corporate Services Ltd., a subsidiary of BCB Holdings Ltd., a public company traded on the London Stock Exchange. The company says it had more than 16,000 companies under management as of March 2009.

Belize Corporate Services Ltd. is the registered agent for our corporation. It charged us $700 to incorporate our company and $75 for courier services. The bank account, debit card and online banking were established for free, but there are some minor related bank fees.

Before we could incorporate or open an account, the company wanted notarized copies of our passports, utility bills with our home addresses and reference letters from our home banks and a lawyer.

“Our intention is to show that anyone on the up and up can legally and easily open a foreign bank account,” we replied.

The bank granted us the account.

Although the bank knows our identities, we are assured that our ownership remains hidden. If Belizean officials present a court order for the information, the bank would comply — but investigators first would have to know about our ownership and have reason to seek information about it.

If we wanted to add privacy layers, for $600 we could appoint a third-party nominee to serve as executive at our corporation, removing our names from the documents. To go further, we could incorporate another company in a second jurisdiction and open a bank account there, adding layers of secrecy.

It's all about intent

Before starting this process, we questioned the IRS civil and criminal divisions. Government officials pointed us to regulations and provided answers about the requirements.

“The difference between legal and illegal is the intent,” said Sybil Smith, acting special agent in charge of the Criminal Investigation Division at Pittsburgh's IRS office. “Is the intent to evade income that should be reported?”

We made it clear that our intent is to inform the public and keep the offshore account legal.

Individuals who earn income abroad must report it in the United States, but our corporation is not doing any business or making any money.

If we maintain the corporation, we will have to file an addendum with our income tax returns this year, identifying our roles. We plan to close the bank account and dissolve the corporation before the end of the year — a move that will cost $750 but save on annual fees to maintain the account.

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